Should drug prices be controlled?

TNNAug 6, 2002, 02.16am IST

Drug prices have always been an emotive issue; more so with the government steadily reducing the number of drugs under price control and increasingly opting for less, rather than more, state intervention. Are public fears unwarranted? Three expert comments...

The new Drug Policy of 2002 has cleared the way for further decontrol of drug prices. It may be recalled that in 1995 the number of price controlled drugs had been slashed from 166 to 74, and this had led to an immediate spiral in drug prices.

Drugs have a unique characteristic — those who need them most are the least likely to be able to pay for them. Thus even a small increase in prices results in the "costing out" from the market of a large number of people.

In a country where, for example, half a million people die of Tuberculosis (a disease that can be treated by over a dozen drugs) because drugs are unaffordable, a licence to profiteer is inhuman.

At present, investment on research and development in the drug industry is less than 2% of sales. The dubious argument that price controls have led to this situation has often been put forward.

In the past decade span of price controls has come down from in excess of 60% of the industry's turnover to around 30%. If reduction in price controls is to spur research and development activity, why has there been no rise in research and development expenditure in the past decade?

It may be recalled that the 1995 drug policy had a provision for keeping all drugs developed by indigenous research and development outside price controls for ten years. This too does not seem to have spurred any significant research and development activity in the industry.

The issue of price controls have nothing to do with infrastructure development for research and development. The bogey of research and development has been successfully used as a "red herring" by drug companies to lobby for price decontrol and thereby licence to profiteer.

Further, a major constraint for the drug industry in India is the relatively small domestic market (compared to our population). The solution to this constraint cannot be sought within the industry, as it has to do with the extremely low purchasing power of over 80% of our population.

The belief that it is possible to extract significantly larger amounts of "surplus" as profits from the domestic industry, that can be channelised for research and development, is thus fallacious.

There is a prevailing myth that drug prices in India are the lowest in the world. This is at best a partial truth. Drugs, which are still patent protected, are much cheaper in India due to India's earlier Patent Act. We would lose this advantage after product patents are allowed in India (before 2005).

But off-patent drugs (which account for 80-85% of sales) are not necessarily cheaper in India. In fact, generally, drug prices for these drugs are higher in India than those in Sri Lanka and Bangladesh. In fact, prices of some top selling drugs are higher in India than even those in Canada and the United Kingdom.

It is obvious, therefore, that the benefits of the advantage that the Indian pharmaceutical industry enjoys over other developing countries, in terms of the availability of indigenous technology and a large domestic market, are not passed on to the consumers.

It is often not realised in this country that all countries have some form of drug price control. Controls on drug prices are exercised effectively in many market economies. In Australia, for example, since 1993, new drugs with no advantage over existing products are offered at the same price.

In Britain, there exists the pharmaceutical price regulation scheme — a voluntary agreement between Britain's Department of Health and the Association of the British Pharmaceutical Industry in which companies negotiate profit rates from sales of drugs to the National Health Scheme.

Globally, drug companies are being forced to reduce the cost of medicines. Pressure is being mounted by health insurance companies, health management organisations (HMOs) and governments (in countries like the United Kingdom and Canada where the State provides health insurance cover) all over Europe and North America.

Thus market mechanisms alone cannot be expected to stabilise prices and various other interventions are needed to manipulate the market, in order to guard against monopolies emerging.

Unfortunately, in India the Drug Price Control Order is the only mechanism that can stabilise drug prices. The government (whose drug purchases are just 5-6% of the total drug market) or insurance companies are insignificant players in the market.

Dilution of the DPCO can only convert drugs to luxury commodities that shall not reach those who require them the most. Drugs cannot be treated on par with other consumer goods, and a proactive role of the State in this regard needs to be re-emphasised.